Understanding Google Ads Bid Algorithms in 2021

In order to understand best practices media management in 2021, especially for Google Ads, it is important to understand how bidding algorithms work.

This article is meant to provide a basic understanding of the concepts and entities that make Google’s bidding algorithms work. Machine learning and automated bidding is an exhaustive subject, so if you are looking for information on the technical nature of bidding algorithms or have more advanced questions, feel free to reach out to me directly or leave a comment.

Overview

There are a variety of bidding strategies that marketers can use in Google Ads. Google has detailed the intricacies and nuances of each here, but suffice to say that there is a bidding strategy for any specific goal you may want to achieve with your Google Ads account.

For each automated bid strategy, there is an algorithm that controls how the machine chooses:

• Who sees your ads
• Who doesn’t see your ads
• How much you pay

No one, except Google, can say exactly how the algorithm works, but Google gives us tools that help us understand how we can better work with the machine that uses the algorithm.

Terminology

Before we go any further, let’s reiterate some terminology:

• Machine = the Google computers that utilize bid algorithms to service the Google Ads platform
• Bid Algorithm = The logic equation that the computer uses to determine who sees your ad and how much you pay for it

Biddable Entities

Bid algorithms rely on data to make good decisions. The most important data comes from two places – your Google Ads account and the Google product network (google.com, YouTube, etc).

When we think about the most important data in our Google Ads account, we need to think about money.

The algorithm looks at variables that impact money:

• Budget
• Bids
• Bid modifiers

We refer to this group of variables as biddable entities.

Anytime we change a biddable entity, we are changing the inputs of our machine learning algorithm. To help us better understand the status of our algorithm, Google has a bid strategy status column in the user interface (UI).

Bid Strategy Status

According to Google:

“Your bid strategy status calls attention to the state of your automated bid strategy at any given point in time.”

There are a variety of statuses that our bid strategies can have, each one tells a different story about the state of our bid algorithm.

From here on out, we’ll use an example account to better illustrate how bid algorithms work with the two main biddable entities, budgets and bids, to get the results you want out of your Google Ads account.

Budget Management

One of the most important aspects of managing bid algorithms is “playing nice with the machine.” Perhaps the nicest way to play with the machine is to give it consistent data that it can rely on to make good decisions for your account.

Let’s take a look at our example account.

Looking at the cost trend line, we can see that spend has been inconsistently spent each day. Best practice media management, especially when utilizing bid strategies, is to evenly flight the budget over the course of the period.

Flighting the budget evenly plays two critical roles for our bid algorithms:

• Provides consistent data to machine learning algorithms
• Builds predictable performance that helps marketers make reliable forecasting and optimization decisions

We want to avoid putting the machine (read: bid algorithm) in a disadvantaged status.

The “limited by budget” status means that the algorithm is constrained, and will not perform efficiently or to its best potential.

So what do we do if we find our bid strategies “limited by budget”?

Bid Management

I hear this a lot.

Client: “T.C., I don’t have an unlimited budget, what do I do when my campaigns hit a “limited by budget” status?”

The answer is actually a bit counterintuitive. Let’s see what Google has to say.

“While counterintuitive, slightly lowering your bids in campaigns that are marked “limited by budget” could potentially help you earn more clicks. Lowering bids for budget-constrained campaigns could reduce the average amount you pay when someone clicks your ads, with the potential for your budget to go further and get more clicks.” – Google

Translation: If your campaign is “limited by budget” status, that is the machine’s way of telling you that you are not playing nice. Lower your bids so that the algorithm can better optimize to the budget you’ve set.

Conclusion

The world of bid strategies is vast, complex, and requires a deep understanding of how ad technology and machine learning algorithms work. However, with a bit of reading and practice, you can begin to better understand what your Google Ads account is telling you and how you can better optimize your algorithms for performance.

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